Sherpa Hossainy's Blog

Myanmar-Bangladesh bilateral trade: Mired in lack of connectivity

Posted in Bangladesh, Banking, Business, Dhaka, Economy, Export and Import, Finance, Interviews, Investment, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

Bangladesh is keen to resolve all the barriers to trade and tap the huge potential of Myanmar, which it sees as a key regional partner and gateway to Southeast Asia, says Bangladesh Commerce Minister

Published in Myanmar Business Today (Vol 1, Issue 11) on April 4, 2013

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A dearth of basic land, air and sea connectivity is daunting the prospects of boosting the bilateral trade between Myanmar and Bangladesh, the Minister for Commerce of Bangladesh said.

“The transport and communication infrastructure is very poor between Myanmar and Bangladesh despite being neighbours. We still haven’t been able to resume the air linkage and we don’t even have land links with Myanmar’s major cities. This is gravely hurting the prospects of a better trade,” GM Quader told Myanmar Business Today.

GM Quader, Minister for Commerce of Bangladesh, speaks to Myanmar Business Today during his visit to Myanmar at the Bangladesh Embassy in Yangon. Sherpa Hossainy

GM Quader, Minister for Commerce of Bangladesh, speaks to Myanmar Business Today during his visit to Myanmar at the Bangladesh Embassy in Yangon. Sherpa Hossainy

Myanmar and Bangladesh have been working to re-establish direct air link to connect Yangon and Dhaka after Biman Bangladesh Airlines, the national flag carrier of Bangladesh, suspended its flight between Dhaka and Yangon in 2007 against the backdrop of economic losses.

Bangladeshi cabinet in June last year approved a proposal for inking a deal with its Southeastern neighbour to resume direct flight service, which will allow seven passenger and four cargo flights to fly between Dhaka and Yangon every week.

“The agreement has been finalised and signed. However, Biman is not in a position financially to start a route which will take some time to become profitable, and airlines from Myanmar are also hesitant about getting into a financially risky venture,” Quader said.

During Bangladeshi Prime Minsiter Sheikh Hasina’s visit to Myanmar in 2011, the two countries agreed to develop their land, sea and air connectivity.

“These three are the biggest barriers for us. India, China and Thailand have a good connectivity structure with Myanmar in place via air, sea and land. We have to improve our connectivity if we have to improve the trade,” the Bangladeshi Commerce Minister said while visiting Myanmar last month.

When asked why Bangladesh have reacted slower than other Myanmar neighbours such as India, China and Thailand to the recent economic reform process the minister said they were “well-ahead than anyone even before the reforms began.”

“China and Thailand have basic advantages. Their manufacturing and production base is much stronger and they are way ahead than us in terms of investing in other countries.”

China is Myanmar’s biggest trading partner, followed by Thailand. Bilateral trade between China and Myanmar was worth about $3.6 billion in the fiscal year 2011-12, according to Myanmar’s Ministry of Commerce, while bilateral trade between Myanmar and Thailand stood at $4.576 billion in 2012. Myanmar-India bilateral trade reached $1.19 billion in 2009-10, making it Myanmar’s fourth largest trading partner after Thailand, China and Singapore.

Besides air linkage, Bangladesh and Myanmar also haven’t been able to develop any reliable road network in the bordering areas. However, the minister hoped that the proposed Asian Highway will hugely boost the road connectivity.

The Asian Highway project, also known as the Great Asian Highway, is a cooperative project among countries in Asia and Europe and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), to improve the highway systems in Asia.

A sub-regional organisation of Asian nations called the Bangladesh-China-India-Myanmar Forum for Regional Cooperation (BCIM), established in 1999 for greater integration of trade and investment between the four countries, organises a car rally, widely known as Kolkata to Kunming (K2K) car rally, to explore the potentials of expanding trade, investment and tourism, and enhance connectivity in the region along the Kolkata-Kunming route.

“We have to establish major road links with Myanmar to get access to Southeast Asia. Myanmar is our gateway to get into the markets of Thailand, Laos and Cambodia,” Quader said. Talks are also underway to allow Myanmar water vessels into Bangladesh’s inland waterways and vice versa to strengthen the sea connectivity, he added.

Asian Highway mapThe Bangladeshi minister also pointed out banking as “one of the biggest barriers” to Myanmar Bangladesh bilateral trade as there is a cap on transaction amount in place. Both countries are trying to increase border trade, which was hit hard by the recent sectarian violence in Myanmar’s Rakhine state.

“We are planning to set up wholesale markets and warehouses along the border. Bank draft margin has also been increased from $30,000 to $50,000 to facilitate trade. These issues were not stressed that much before as the trade volume was low and there were sanctions against Myanmar banks, but now we are developing mechanisms to remove the existing obstacles,” he said.

The border trade between the two countries is still low (125 commodities) compared to the existing potential and overseas trade. About 10,000 commodities are traded along the Myanmar-China border, while about 3,000 commodities are traded in Myanmar-Thailand border trade.

During the 6th Joint Trade Commission (JTC) meeting between Myanmar and Bangladesh held in Dhaka in November last year, both countries agreed to enhance the volume of bilateral trade to $500 million from around $100 million annually.

The bilateral trade between the two neighbours amounted to only about $79 million in 2011-12 fiscal year, while it stood at $170 million in fiscal 2010-11. Bangladesh exported goods to Myanmar worth $13.45 million during the fiscal year 2011-12.

However, the volume of unofficial trade between the two countries is about $300 million per year, Border Guards of Bangladesh (BGB) sources were quoted as saying in Bangladeshi media.

Bangladesh exports steel products, light engineering machinery, cement, dry foods, medicines and cosmetics to Myanmar and imports fish, timber, spices, synthetic foot-wears, among others. Besides the formal trade, a large quantity of petroleum products, fertilisers, agricultural inputs, and automobile parts are also smuggled into Myanmar.

The minister agreed that illegal border trade has been a problem as there were no formal banking channels in place. “Businesspeople don’t want to do illegal trade. But the payment system was complicated and they had to do transactions through hundis. But we are trying to clear the restrictions now so that all businesses can be done legally.”

During the Bangladesh Prime Minister’s visit Myanmar and Bangladesh signed memorandum of understandings to establish a Joint Commission for bilateral cooperation and a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

Bangladesh is also interested in importing power from Myanmar as a power-starved country, the Minister said. “Not only power, we have to develop all kinds of infrastructures to facilitate business. Now people do business via Singapore or Bangkok and it takes a lot of time and money for businesspeople.”

“However, we have identified the barriers and efforts are being made from both sides to overcome those,” he said.

The Bangladeshi Commerce Minister said the trade volume between Myanmar and Bangladesh hasn’t reached a satisfactory level because of former Western sanctions and economic isolation of Myanmar, but the doors for business seem to have opened again.

“The opportunities are huge in Myanmar as it’s a very resourceful country. They have abundant agricultural products such as rice, pulse and beans. They have timber, oil and gas and jade, and most of the resources are mostly untapped here,” he said.

“The biggest advantage for Bangladesh is its geographical location. Many of our products are globally well-known for their quality such as readymade garments, leather and pharmaceuticals. Even Bangladesh’s shipbuilding industry, a sector where Bangladesh is recently registering remarkable export growth, has a great potential here.”

Bangladesh is the world’s second largest readymade garment exporter behind China with annual exports of about $20 billion and its leather industry is set to cross $1-billion mark in export earnings this fiscal year. The pharmaceutical industry in Bangladesh is one of the most developed hi-tech sectors within the country’s economy, with an export amount of over $50 million.

“If we can further the ties between the businesspeople of the two countries, and from the government’s part if we can ease the existing barriers then we can definitely develop our bilateral trade at a very faster rate,” he said.

“We both have goods that we need and can provide. So, the possibilities are endless.”

However, the Minister said it would take some time for Bangladeshi investors to come and invest in Myanmar because of Bangladesh government’s “rather strict” policy towards its businesspeople investing in other countries. “Only three to four months ago we started allowing foreign investments from Bangladesh in a case-by-case basis. Investment policy from our side to outside is still too restricted.”

“However, we are interested to invest in the cement industry in Myanmar as they have available raw materials. If Bangladeshi entrepreneurs are interested and Myanmar agrees to supply the raw materials we can go ahead and set up cement factories here,” Quader said. We also welcome any Myanmar investors who are interested to invest in Bangladesh, he added.

“We are very hopeful that there will be positive development. The Bangladeshi businesspeople who came here said they received overwhelming response from the Myanmar side.

“There is a huge trade prospect for both countries. The whole world is trying to establish their presence in Myanmar now. As a next door neighbour we shouldn’t just sit idly and let the opportunities fly past,” the Minister said.

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